Here's our summary of key economic events overnight that affect New Zealand, with news the Australian Government is rolling in unexpectedly high and surging tax revenues.
But first, the US released its May PCE inflation result overnight and it was another small dip, up +3.8% from a year ago and lower than the April +4.3% rise. If there is a hesitation it is that the pace was above that in the April-to-May period. But markets cheered the result and equities surged. But bond markets aren't signaling they think the Fed will relax just yet, especially as it signaled two more rate hikes at least in 2023. They have a July 26 +25 bps fully priced in now.
We should also note that while personal incomes keep growing at an inflation-equalling pace and better than expected, consumer spending did dip in May according to this update and that was less than expected.
Meanwhile heartland manufacturing in the Midwest Chicago region is suffering with their PMI retreating faster than expected. It isn't a positive signal. It did come in in June less-worse than the May but the recovery was timid and much less than anticipated.
However, the final June University of Michigan survey of consumer sentiment is rising and by more than expected, capping four straight months of gains. But to be fair it is still well below its long term average of positivity. It looks good because the base of a year ago was so weak.
The first estimates of the US non-farm payrolls are coming through and the expectation is that they will rise another +223,000 to keep the labour force-led expansion going. But remember these forecasts greatly underestimated the gains in May which came in at +339,000.
A Canadian business outlook survey run by their central bank found businesses reporting that their indicators of domestic demand have moved up compared with a year ago as uncertainty about the path of future interest rates and concerns of a recession fade.
China released its official PMIs for June yesterday and they make concerning reading. Factory activity stayed in a mild contraction but it is now three months in a row it has contracted. Services is expanding but at their slowest pace in six months. Still, neither is severe, only lackluster. The Caixin versions will come on Monday. The private Caixin versions have recently tended to reflect slightly better results over the past few months.
Although some say it is only codifying existing practice, the new 'national security' laws that came into effect in China today are so broad that even your own company's data could be considered a state secret and you could be arrested and prosecuted for distributing it outside China. The wording is very ambiguous and interpretation will be decided by officials on a case-by-case basis, not in their courts. It is a move that is likely to suppress much foreign investment into China. Here is one summary of the new law and how it sits with other Chinese measures in place. Here is what the official Chinese media says. The contrasts are stark. If you do business in China, go in with your eyes open.
The Chinese yuan is now at its weakest since the end of 2022 and if it beaches that, it will be its weakest since 2007.
Japanese industrial production which has been soft-to-flat for the prior six months, too a sharp turn higher in May, confirming other signals that Japan seems to have turned a corner. Some of that might have been inventory build, but most components seem to be going in the right way.
Inflation in the EU came in at 5.5% in June, down from 6.1% in May, so they are on the right track even if more progress needs to be seen by the ECB before they ease back on their policy interest rate hikes. Food prices are the main pressure point now. Energy prices are the key restraining factor.
But German retail sales can't hold on to inflation, with a shrinkage on a volume/real basis. But at least their labour market is still hanging in there (just).
In Australia, as we signaled yesterday, the latest Commonwealth government accounts are revealing surging surpluses. They reported a monster +AU$24 bln surplus in May alone. Their financial year ends in June. Now they expect the full year surplus to be far bigger than the +AU$4.2 billion forecast contained in the budget seven weeks ago. Probably an all-time record. And big surpluses are now projected for the 2023/24 year as well. It is raining revenue for the Australian government as both company and personal taxes rose to new highs.
But it may not last. China’s leading steel makers warned on Friday that their industry faces a challenging second half as demand disappoints, profitability lags and pressure to cut costs mounts in the world’s top producer. Most of their steel is made from Australian and Brazilian iron ore.
The UST 10yr yield will start today up sharply at 3.84% and settling back -1 bp from yesterday. A week ago it was at 3.74% so a net +8 bps rise since then. Their key 2-10 yield curve inversion is a little steeper however at -105 bps. Their 1-5 curve is little-changed at -129 bps. But their 3 mth-10yr curve is more inverted, now by -138 bps. The Australian 10 year bond yield is now at 4.00% and unchanged. The China 10 year bond rate is down -2 bps at 2.69%. And the NZ Government 10 year bond rate is up another +4 bps at 4.68% and its highest since early March 2023. Recall a week ago it was at 4.60%.
We should also note that LIBOR as a maintained benchmark formally ends today. In the bond world it is a big deal and a benchmark very hard to shake.
Wall Street closed its Friday trade with a +1.2% gain on the S&P500 to lock in a weekly rise of +2.4% and an impressive monthly jump of +5.4%. Overnight, European markets all rose solidly too on the day. London ended June with a +0.6% monthly blip. Paris was up +3.7% for the month, and Frankfurt managed a +1.9% monthly gain. Yesterday, Tokyo ended its Friday trade little changed on the day bit up +1.7% for the week and up +6.6% for the month. Hong Kong was also little-changed in its Friday session to end the week up +0.4%, and +3.8% for the month. Shanghai was up +0.6% yesterday for a +0.8% weekly rise. But that was no gain for the month. The ASX200 ended its Friday session unchanged to book a weekly rise of +1.5% and a monthly rise of a lesser +1.3%. And the NZX50 booked no monthly gain, saved because yesterday it was up +0.9% and for the week it was up +1.4% so it would have been embarrassing without the late recovery.
The price of gold will start today at US$1920/oz and that is back up +US$12 from yesterday although exactly where it was a week ago.
And oil prices are up +US$1 from yesterday to now be just over US$70.50/bbl in the US. The international Brent price is now just under US$75.50/bbl. In a week these are up +US$1.50.
The Kiwi dollar starts today at 61.4 USc and up +¾c from yesterday. But that makes it unchanged for the week. Against the Aussie we have risen to 92.1 AUc and a +½c gain from yesterday although little-changed for the week. Against the euro we are up similarly at 56.2 euro cents. That means the TWI-5 has risen +60 bps to 69.8 but exactly where we were a week ago - although up +80 bps for the month.
The bitcoin price has slipped slightly from this time yesterday and now is at US$30,316 which is a -0.7% dip and it finished the month above NZ$50,000 for the first time since April 2022. Volatility over the past 24 hours has grown to a high level at just over +/- 3.0%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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This is where the Fed's stress test assumptions go really wrong. Big banks are cutting back, risk averse. Smaller banks where the crisis is going to really hit are already deep in the credit crunch. Banks won't continue lending; they've already stopped. https://buff.ly/3JC9ez4 Link
ASB increasing their Savings Plus account max interest rate to 5% today.
https://www.asb.co.nz/documents/media-centre/media-releases/asb-adjusts…
Yes I was quite surprised by the recent increase to the 10-year swap values. The indication is that the markets do expect a decrease in interest rates, but later, and to a significantly smaller extent, than many wishful thinkers are hoping for.
The time of ultra-loose suicidal low interest rates has gone for the foreseeable future.
The ASB bonus savings account is for 3 months, plenty of time for customers to have to dip into it and they can slash the interest rate. The one month bonus savers from ANZ BNZ WBC are far better. WBC you can make as many withdrawls as you like as long as the balance is higher than the previous month at the end of the month, so I prefer WBC Bonus saver at present. Kiwibank actually matches these with an unlimited online call account too.
Thames Water – The Straw that broke the UK’s back?
The Thames Water debacle is shaping up to be a critical “Judder” moment for the UK. Public utility privatisations decades ago have left a legacy of underinvestment and broken services. The bills will be enormous – and crippling - creating a potential investment crisis.
The let’s say somewhat ill-regarded George Kerr floated a slice of that ex Macquaries, in NZ in 2007 under the mantle of “EPIC”. A modest investment on my part resulted in vowing to never again invest in what I didn’t fully understand. Once the very good initial dividends dried up reached the point of taking it on the chin, and wrote it off. Unexpectedly though, after the capital had been switched into another vehicle, it came right in so far the capital came back with a bit added on.
Although some say it is only codifying existing practice, the new 'national security' laws that came into effect in China today are so broad that even your own company's data could be considered a state secret and you could be arrested and prosecuted for distributing it outside China. The wording is very ambiguous and interpretation will be decided by officials on a case-by-case basis, not in their courts. It is a move that is likely to suppress much foreign investment into China. Here is one summary of the new law and how it sits with other Chinese measures in place. Here is what the official Chinese media says. The contrasts are stark. If you do business in China, go in with your eyes open.
the latest Commonwealth government accounts are revealing surging surpluses. They reported a monster +AU$24 bln surplus in May alone.
When a Govt runs a budget surplus, the private sector has to run a deficit, unless the country as a whole is running a current account surplus with the rest of the world, which is exactly what is happening in Australia. They are averaging around $15bn per quarter surplus on trade.
Now, imagine what would happen if the NZ Govt runs a budget surplus? We have a large current account deficit with the rest of the world, so any Govt surplus has to involve taking money off businesses and households. This can be sustained whilst commercial banks are pumping in new credit money to help kiwis to bid up the prices of weatherboard palaces; but... private sector credit flows have gone into reverse over the last few months and the NZ Govt is taxing back about the same as it is spending.
This is a recipe for a guaranteed recession: trade deficit + net Govt spending near zero + net private sector borrowing near zero. Something will have to give over the next 6 months or we will spiral quickly into a repeat of 2009/10 whilst the rest of the world looks on in bemusement. Either Govt will have to start deficit spending or RBNZ will have to reboot the housing ponzi. Which will it be?
The former = Govt will have to start deficit spending. If we look, we can see it, even if the Opposition will cry foul, as loudly as it can. Because, as most of us might agree, the last thing we need is "kiwis to bid up the prices of weatherboard palaces". The days of New Zealand becoming 'wealthy' by increasing Private Debt against paper gains on property prices must come to an end. Because opting for your alternative option 'RBNZ will have to reboot the housing ponzi' will make the disaster we are facing even worse. Later, sure. But worse.
Michael Hudson: Corruption. Your central – when I was down in Australia, Karl took me to your very nicely-designed capital of Canberra and I met with the central bankers there. And they said, “We’re a very lucky country. We live in the – we’re a neighbour of China and we can balance our payments and really get by just through exports. We don’t need any industry and quite frankly, we don’t need people.” So, this is – the corruption is just the bank-centred world view that Australia should be run for the benefit of the mining interests, the iron mining interests that created the wealthiest lady, I’m told, in Australia.
And the central bank is run for the mining interests and for the foreign investors. The Bank of Australia policy is made by England, which is made by the Federal Reserve so just as you elected a socialist Premier or Prime Minister, the Queen of England’s local representative in Australia said, “Well, you’re a colony, we don’t agree with that person. You can’t elect them. You can only elect people that we agree.” This is what Australia did and so, it passed a neoliberal regime of the government in Australia that is even worse than Tony Blair in London. And the same thing in New Zealand under Douglas economics. Link
I must sound like a broken record, but if we get a National government in to cut spending without a considerable reduction in income tax, we’re completely ducked.
And so next question, all these failing services and sectors, where’s the money coming from?
Not to mention increasing outflows to banks via rolling interest rates. This money ends up in someone’s pockets, usually foreign investors.
Igniting the housing market now won’t save us, as we need money spent in our economy, not put away in another asset for a rainy day.
In 2017 Labour had 9 years to "prepare a comprehensive policy platform to address the issues" .
The racist seperatist spendthrift policies they have implemented were never put to the electorate first because if they had they knew that NZdrs would never elect them.
Im currently in Malaysia which is a good example of Labours apartheid end game.
You’re right.
NZ is in the worst state I’ve experienced in my adult life. We currently have a Labour government. There was an election, there were promises, they got in. I have no intention of Voting Labour.
Thats settled. We agree.
What will National do to make things any better during the term we are voting for? The future… that’s what I care about.
On the apocalypse thing, NZ would be a terrible place if it's a more likely (basically inevitable) minor apocalype (like China finally doing Taiwan, or the next decent bing bong in the Middle East). Imagine the supply of refined fuels dropping to a trickle for a few months. The cops/army would still be driving around, but would have their hands full collecting 1% of the looters. Export earnings for a while - almost zero.
Clothes and shoe manufacturers as well. Sans fabrics. Could do hemp?
NZ would have been paradise each time it was found.
The next big one would be if networks went down. Internet etc, for which we’re reliant for external communication.
My job would be obsolete. Let me dust off that old survivalist book and stocktake the prepper pantry
Uhh, yeah. Pretty safe to say in event of global thermonuclear war, standard consumer items and most people's jobs would be gone burger.
As for clothing, we have all those white fluffy things dotted around the countryside. Although there's probably enough clothes already in NZ for a decent while.
Our transport system relies on fossil fuels. It's pointless being self sufficient in electricity if you can't move things around with electricity.
Hence one of the many reasons we need to decarbonise our transport system. And no, electric cars will not solved it because we'd need more than we can afford to buy.
That the end of a 40 year housing bubble is a bitter pill, but there’s potentially a way forward for our country that doesn’t involve rewarding speculation?
Like I said, I agree things are dire under Labour. I don’t want to vote Labour. But please give me hope that National can do better than “just look at the last 6 years…” and expect everyone to flock to them like sheeple who can’t see past their toes. Everything about their policy is a big red flag.
Next time you see a clip of them talking, take notes of what they are proposing. Ignore the “look how bad they are” and listen. Deflationary surplus. Speculation. Low wage pressures. The one hope is more investment in police, but even that’s heading towards concentration camps. There’s nothing worth voting for. You’ll get a lolly then the door will slam shut.
Where's NZ money from? Simple, it is either:
- Created out of thin air by RBNZ when Govt spends it, or...
- Created out of thin air by commercial banks when they make a loan
So, to fix failing services, Govt simply needs to spend more money on those services. Govt then needs to decide how much of that money to leave circulating in the economy (the 'debt'), and how much of it they tax back (destroy).
The constraint on Govt spending is not the count of how much money they have created that they haven't taxed back yet, it is the availability of things to buy. For example, free dental care would require us to increase the number of dentists from around 2,000 to 3,000.
The sooner we see the economy in real terms, the better.
Looks like they're doing debt swaps to me! Current system (as you know) for Govt spending basically involves:
- RBNZ marking down the Crown Settlement Account by $X
- RBNZ marking a bank settlement account up by $X (creating a Crown liability and increasing Govt debt by $X)
- The bank then marking up the credit in their customer's account by $X
- The total balance in banks' settlement accounts ($48.7bn) earns interest at OCR. It is part of Govt debt.
- When a Govt Bond is sold by Treasury, the Crown swaps floating rate debt in bank settlement accounts for fixed rate debt in the form of a Govt bond. It is not raising money, it is swapping liabilities.
- The balance in the Crown Settlement Account is a mirage - a treasury asset and a RBNZ liability, thus worthless to the consolidated Crown
Banks' holdings of Australian Government Securities have also risen recently, alongside an increase in Australian Government borrowing, which has contributed to the rise in bank deposits. However, the process of deposit creation is slightly different when the banking sector purchases debt issued by the Australian Government, since the Reserve Bank is the banker for the Commonwealth of Australia. When the Australian Government borrows from the banking sector, it holds the borrowed funds as a deposit at the Reserve Bank until the funds are spent. As the Australian Government spends these funds in the economy, such as in the form of JobKeeper payments to businesses, it adds to deposits held by businesses and, subsequently, to deposits of the household sector through employees of those businesses. RBA Link
I think MMT aligned economists make a lot of sense. Ultimately they describe how the monetary system actually works and build theories accordingly. Seems like a good idea to me! Certainly better than most of the mainstream economists with their batshot crazy assumptions and models that continually fail.
Made me chuckle ...
MMT proponents don't claim " their batshot crazy assumptions" and theories work. They leave such claims to to past economists who did claim " their batshot crazy assumptions" and theories worked.
That's the only difference. MMT makes no claims, except "It has promise. But we are still trying to figure it out."
I can live with that. As I could live with previous theories.
I don't think considerable tax cuts are going to make us better off overall.
The economy could get a short-term boost as Kiwis spend away the bump in disposable income on imports (new phone, home appliance, overseas trip) but the hangover will be much worse after the sugar rush weans off.
Most of the economy people are making a living from is heavily weighted towards confidence, and sloshing money around is one of the easiest ways to do that.
Maybe the real reality is everyone's lives and living standards are only really at 1980s soviet-era Russia quality. Don't think too many would be happy with that.
Neither
Cut the desirable but non essential spending and put government into surplus. (converts non productive capacity into productive)
Households change to net savers and owners rather than tenants and borrowers.
Outcome. Grandkids are richer. Not endlessly trying to catch up, running the treadmill for overseas benefit
You know, think long term.
Fair argument but that productivity turn from reduced spending will take a while to occur.
Currently our economy depends on import/borrow and spend. A sizeable jobs in NZ are lower paying that rely on discretionary spending from other businesses, households and government.
Households and bureaucrats spending our money judiciously we will thrust into a deep recession in a matter of weeks. Good in the long run but too much vested interest going against such reforms.
😂 yes yes…
Running a surplus now, when we’re in the negative in all other areas, trade, foreign, would have a massive deflationary impact on our economy. Mass unemployment and asset price destruction. At least it’d be quick. But I’m very wary of any politicians talking about reducing spend right now when all other sectors are looking deep in the red in the near future
As opposed to the tunnel-visioned "quick everyone let's all throw our money at whatever is the buzzword hype train of the day" tendencies in the market?
People are concerned about housing without identifying that many of today's larger enterprises that provide jobs and incomes are loss making entities reliant on ever increasing share values.
The “Big Seven” — including Apple, Microsoft Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Nvidia Corp. and Tesla Inc. — boosted profits by 14% a year during the decade through 2022. While their combined earnings slumped more than 20% last year, they’re expected to recover swiftly. Link
As opposed to the tunnel-visioned "quick everyone let's all throw our money at whatever is the buzzword hype train of the day" tendencies in the market?
I'm more bullish on the potential of and opportunities from AI than the property bubble my little sock puppet. Even the likes of Stan Druckenmiller have put money where their mouth is. Anyway, each to their own.
Well yes. Apple was a good bet and had no real challengers.
Apple’s stock ended trading Friday valued at $3 trillion, the only company ever to reach that milestone. It has been riding a Big Tech stock wave that has given the Nasdaq its best first half gain in 40 years.
https://edition.cnn.com/2023/06/30/tech/apple-3-trillion-market-valuati…
Apples' been a good bet for around a quarter of a century.
Not really much of an AI play though
If it's any consolation, Buffet is also not particularly tech savvy and invested in Apple late in the game (2016 - 378% unbooked gain). And in the world of Buffet, this was a FOMO play - it's a juggernaut so can't miss the momentum.
I said that Buffet was late on Apple. And yes, he did FOMO - an important factor in momentum plays. And Apple has been an important holding for Berkshire Hathaway's performance.
Buffet also bought the Japanese trading companies on anticipation of the repartition of funds to Japan entering JGBs as well as value stocks. Smart move. If you understand why.
Do you not understand value investing?
The 'optimal' time is usually at the foundation stage, which can be a pig In a poke. Most people fail attempting to get into something for cents in the dollar based on what they think the future will bring.
Apples history gives a value investor a foundation to define value, and invest accordingly. Over time, they actually get into things for cents in the dollar. It just takes time.
I don't think you grasp my point.
- AI is definitely of use and it's use will only increase. And with it, the value of AI stocks.
- A handful of companies will become the market leaders, with commensurate values, and the vast majority of firms won't.
I've been involved in tech for a decent period of time, both commercially and as a hobbyist. Genuinely good tech becomes almost invaluable. Plenty of shit tech ends up being worthless, it just takes people a while to realise.
Every company in this field is going to tell you they're the best thing since sliced bread. It shouldn't take a tech mastermind to determine most of them are wrong, just good luck determining who is who.
Off topic, but I moved to NZ in 1967 with my parents, and I recently found a bundle of family photos going back to 1901. They were wrapped in a Newcastle (UK) Evening Chronicle newspaper from May 1967. So Mum or Dad will have just used the local paper of the time to pack them for the big voyage (Dad is still with us).
Centre of front page is "New Zealand plane deal shocks Britain". Britain had just joined the common market, and the NZ govt decided to buy American Boeing 737 airliners instead of British BAC-111s, to replace British Viscounts. Initial order 3 to be delivered 1968. Apparently the NZ Premier, Holyoake, said the common market decision had a bearing. Deal subject to finance.
Probably Foxglove or someone can add some detail from their own recollections for the plane spotters out there.
Japan Exchange (JPX) has established a new index, to launch next week, that highlights Japan's largest companies that earn an RoE above their cost of capital and trade above book value.
Interestingly Toyota (largest company in Japan) is excluded from the index as it did not satisfy the price-to-book value criteria. This is analogous to Nasdaq excluding Amazon because its margin is too low. This is sending a major signal to corporate Japan to tidy up its act.
An interesting Healthcare comparison - UK oriented but incudes NZ which performs poorly eg 30% more preventable deaths than Oz
https://www.kingsfund.org.uk/blog/2023/06/comparing-nhs-health-care-sys…
Singapore Govt-owned Singtel, 100% owner of telco Optus in Aussie, claims "zero tolerance" for "corruption in any form". Given that Gladys Berejiklian is a leading Optus exec, will be interesting to see if they practice what they preach. Gladys was hired months by Optus after ICAC announced its investigation.
The “Singtel Group Anti-Bribery and Corruption Policy”, which covers Optus, appears in stark contrast to the actions of the group since senior executive and former Australian politician Gladys Berejiklian was last week found guilty of serious corruption.
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